Non-contributory insurance clause: Overview, definition, and example
What is a non-contributory insurance clause?
A non-contributory insurance clause is a provision in an insurance policy or contract that specifies that one party's insurance coverage will be primary and will not require contributions from another party’s insurance. In other words, if a claim arises, the insurance coverage provided under the non-contributory clause will pay the full amount, without seeking contribution from another policyholder’s insurance, even if the other party is also at fault or responsible in some way. This clause is commonly found in construction, rental, and service agreements, where one party wants to ensure that their insurance provides primary coverage without relying on others.
For example, in a construction contract, the general contractor might require that the subcontractor’s insurance be non-contributory, meaning that if an incident occurs, the subcontractor’s insurance will cover the full cost without seeking contributions from the general contractor’s insurance policy.
Why is a non-contributory insurance clause important?
A non-contributory insurance clause is important because it helps ensure that one party’s insurance is the first line of defense in the event of a claim, simplifying the claims process and reducing the need for multiple insurers to coordinate. This clause provides clarity about which insurance will be used first, preventing delays or disputes over coverage responsibility. It also provides financial security to the party requiring the clause, knowing that their insurance will be used exclusively without the risk of another insurer being involved.
For businesses, non-contributory insurance clauses help reduce the risk of claims being delayed or disputed, ensuring a smoother claims process. For individuals or entities, this clause guarantees that they won’t be burdened with the responsibility of contributing to a claim when their policy was intended to cover the full cost.
Understanding a non-contributory insurance clause through an example
Let’s say a business owner rents a warehouse and the lease agreement includes a non-contributory insurance clause. If a fire occurs that damages both the warehouse and neighboring properties, the landlord’s insurance will cover the damage to the warehouse, and the landlord cannot seek contributions from the tenant’s insurance policy, even if the tenant’s actions contributed to the fire. The clause ensures that the landlord’s insurance is the primary source of coverage.
In another example, a construction project involves both a general contractor and several subcontractors. The general contractor requires that the subcontractors’ insurance policies be non-contributory, meaning that if an accident occurs on the job site involving a subcontractor’s work, the subcontractor’s insurance will pay for the damages, without any involvement from the general contractor’s insurance.
An example of a non-contributory insurance clause
Here’s how a non-contributory insurance clause might appear in a contract:
“The Subcontractor’s insurance shall be non-contributory with the General Contractor’s insurance. In the event of a claim arising from the Subcontractor’s work, the Subcontractor’s insurance shall cover the full amount of the claim, without seeking contribution from the General Contractor’s insurance policy.”
Conclusion
A non-contributory insurance clause is an important provision in contracts that ensures one party's insurance is the primary coverage for a claim, without requiring contributions from another party’s insurance policy. This clause simplifies the claims process, reduces potential disputes over coverage responsibility, and ensures that the party with the non-contributory insurance can rely on their policy to handle the full cost of a claim. For businesses, contractors, and individuals, this clause helps provide clarity and financial security in the event of an incident.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.